Property chaos hits small firms

Small businesses could be hit hard by a government tax on empty commercial outlets that is forcing many developers to cease work on new developments and knock down existing buildings.

Earlier this year, the government scrapped rate relief of empty commercial premises, meaning developers have had to pay the same rate on unoccupied buildings as fully let ones from July.

Previously properties enjoyed a three-month leeway, after which they would pay 50% of the occupied rate but the move to do away with this concession altogether has led to many developers deciding to knock down premises.

The move could lead to a general shortage of commercial property, meaning much higher rates once the economy picks up, while it is also bad news for those who lease such offices in largely empty premises that could be targets for demolition.

Many companies looking to downsize operations may also be unable to get out of existing leases, and this could even send them out of business, according to the British Property Federation (BPF).

"Like many others we are demolishing more buildings as empty rates make it uneconomic to look for low-rent tenants for older properties as we would have done in the past," said Ian Coull, chief executive of real estate investment trust Segro.

Many of our tenants will be even worse off in the short-term, as they will have no choice but to pay what is essentially a second mortgage on space they can neither use nor sub-let

"But many of our tenants will be even worse off in the short-term, as they will have no choice but to pay what is essentially a second mortgage on space they can neither use nor sub-let because of the decline in the economy."

Businesses holding warehouse or factory space have been particularly hit by the withdrawal of relief because they used to enjoy 100% relief (shops and offices attracted only 50% relief).

"This is an ill-conceived move that is hurting regeneration and reducing the supply of affordable property that is essential for business," said Peter Cosmetatos, finance director at the BPF.

"The tax is causing older buildings to be demolished early and new projects to be shelved. The result will be less available property and higher rents when demand begins to recover."